Wine Prices

Why does wine cost so much?

See image on the left

Clos du Bois Winery (www.closdubois.com), Sonoma County, California. Since I left it has been owned by several large companies and was eventually purchased by Gallo. This week Gallo laid off all the workers and closed all the facilities. The brand name will continue. But, the winery is gone.

Into the Woods

Frank Woods taught me many things but surely the greatest of these is the $5 wine trick. Frank founded Clos du Bois (“Wood’s Vineyard”) and became legendary in wine marketing circles, but at the time he was just my boss, and we were sitting in an old tin shack about 5 feet from the railroad tracks in downtown Healdsburg, California.

Every time the train came by it sounded like God had just grabbed the roof and was going to shake us out of it like the last peanuts out of the bottom of the bag. The metal sheet walls trembled and banged against each other.

It sounded like a dying dinosaur and deafened people for a radius of 10 miles around. You don’t forget stuff like that. I was terrified the first 20 times or so.

So, we’re sitting around in the shack and Frank absentmindedly took two different wines that sold for $5 a bottle, poured them together into the same bottle. We all allowed as how the two together made a pretty tasty wine.

The reason Frank was a genius is that he then turned around sold them for $10 a bottle. I love that. Would you like two Rosés for $5 each or one rose for $10?

Only in the wine business do people say, “Gimme that $10 Rosé and stop insulting me with all that talk about $5 Rosés.”

I didn’t know it at the time, but this proved to be a pivotal moment in my life. The secret of life was laid out before me in the unlikeliest of times and places, if only I had eyes to see.

How could this happen? How can people refuse to buy a Rosé for $5 and demand to pay $10 instead? The wine was the same, so something about the people must be different. But, what?

For the mathematically inclined among you, that $10 bottle had the same cost as either of the two $5 wines alone (there was half as much of each wine in each bottle, so half as much cost) but now we sold it for twice as much as either wine individually. Cool.

At the time, I’m thinking we all get rich.

Where there is no wine there is no love.

—Euripides, Ancient Greek playwright and author of “The Bacchae”(c. 480 BC-406 BC)

Frank named the new $10 blend “Marlstone” after a kind of rock that shows up in vineyards from time to time. Frank liked rocks. He must have had fifty names for brands from rocks, but that day, for no particular reason, we chose “Marlstone”.

I suppose I should add that rocks are good in vineyards because the rain drains down deeper into the soil and the roots of the vine follow the rain.

Following the rain is a good thing. Marlstone became possibly the most famous and expensive wine Clos du Bois ever made. Today a bottle of Marlstone costs in the range of $70 per bottle…if you can find one.

For many people, Marlstone is the signature wine of one of the most famous wineries in the world. It was created by four of us sitting in a dark, cold tin building with a leaky roof and a wine case for a tasting table. More romantic in the telling than in the doing actually.

Now, here’s the thing. Frank had to sell the same wine as bulk wine a few months before at about the equivalent of $.50 a bottle. That’s not a misprint---Fifty Cents, not Fifty dollars. And he was glad to get that. It costs a lot of money to store wine in tanks and barrels. So, imagine our collective surprise when people ignored the same wine at $5 a bottle and made a cult out of it at $10.

Reality is an illusion that occurs due to a lack of wine. ~ Anonymous

Really, what was going on? Maybe we should pour everything together, double the price and retire. Something was going on in these people’s minds but I couldn’t figure out what it was.

We have professional wine tastings all the time in the wine business, so it’s easy to check a few tastings and compare the price and the ranking given to the wines by the participants.

If our common belief is true, the higher the wine is rated, the more it should cost. There is no way, according to modern wine making theory, that a $5 wine that’s a bust should become a superstar at $10. But, it did.

So, what does that mean about the big questions: Why are we here? Where are we going? What does life mean?

I don’t know about those things, but I know you can pour two $5 wines together and sell it for $10.

The explication of brain scans, marketing studies and autumnal moon phases on your personal buying habit's are too involved to report here, but I would like to give you one thing to ponder:

The people who bought Marlstone at $10 were happy. The people who bought Marlstone at $5 were not.

Is that bottle of wine really worth $2,619.97 ?

People want to believe that wine has an absolute value. So, is this wine really worth $2,619.97? Even with a dirty label? Well, it’s all in how you look at it.

Domaine de la Romanee-Conti Romanee St. Vivant Grand Cru (bin soiled label) 1988 Pinot Noir from Burgundy, France (https://www.wine.com/search/Romanee%20Conti/0) Price listed at $2,619.97.

Someone always says to me something along the lines of, “Well I wouldn’t pay that much money for wine….”.

And, I invariably say, “Well, what would you pay $2,619.97 for?” How about $3,600 in gold? It’s a matter of why you are spending it and what matters to you personally. Value is fluid.

And yes, you could buy a not-very good car for $2,600. Just remember that in this specific case, in five years the wine will be worth more than the car.

For further study see https://www.quarkanalytics.com/Blog/what-is-simple-regression-analysis/Investing in the Future

Investing in Wine

There is one unique exception to the “right now” rule. If you are investing in great bottled wines then you are betting on it’s value going up in the future. There is a mathematical method to figure out what you should pay right now called regression analysis which is used to estimate the net present value of any given asset—that is, what you should pay for it right now.

The formula is right if your assumptions are right. But, that’s a problem isn’t it? I’ve simplified the explanation that follows but it illustrates one of the problems with assumptions.

Suppose you bought 10 cases each of Lafite 1958, 1959, 1960 and 1961 when they were first released. The ‘58 and the ‘60 turned out to be clunkers. You’d lose money on both. Both ‘59 and ‘61 were among the best Lafite ever had.

Would the money you made on the ‘59 and ‘61 be enough to cover your losses on the ‘58 and ‘60? Maybe. It depends.

Would you have known in 1960, the year after one the best vintages ever (1959), that 1961 would be as good or better than 1959? Remember, using the assumptions above, you just lost money two years out of three (1958, 1960).

How much would you actually have been willing to bet the fourth year would be a classic? There are a lot of factors that influence price, including tolerance for risk. A warehouse in Vallejo, California (South of Napa Valley) burned down a few years ago destroying a lot of really good wines, many of which were owned by private investors.

It turned out it was an insurance fraud scheme by the guy that owned the warehouse. That’s a tough one to put in the formula. No one predicted he would do that. No one predicted the impact it had on the price of the wines that were stored other places.

So ,what is a particular bottle of wine worth? It’s worth what you are willing to pay for it. More to the point I suppose, is what is your wine worth? It’s worth what somebody else will pay you for it.

There are sites on the internet that will value your wine but for a quick ballpark range check look at www.wine com. If you are dealing with rare wines you can get a feeling for the value from www.liv-ex.com which provides actual sales prices for give or take 16,000 different (mostly expensive) wines. It’s an information base for the trade so you’ll have to join if you want the details.

The value of a given wine (including yours) is a moving target. It’s going up and down all the time.

For practical purposes, I’d say just figure out what’s it worth to you, pop the cork and enjoy.

Just for fun…

As fate would have it, one of the world’s greatest Chateau has just released (May 11, 2021) their 2020 vintage at give or take $6,500 per case/ around $550 per bottle at the moment. It won’t even be delivered for another year or two. Or more.

• Cheval Blanc has been released at £4,656 per 12×75, marking the official start to this year’s En Primeur campaign.

• This price represents a 3.5% increase on the 2019’s UK release price but is 2.7% down on the 2019’s current Market Price.

• The new vintage has been scored 99 points by Jean-Marc Quarin and given a barrel range of 95-97 from Peter Moser (Falstaff).

See more at: https://www.liv-ex.com/2021/05/cheval-blanc-2020-en-primeur-official-start/

from Business Insider

(https://www.youtube.com/channel/UCcyq283he07B7_KUX07mmtA)

OK, OK. So I know it’s in French. But just watching the pictures is glorious. This is how they make the best wine in the world—it’s worth taking a look if you love wine, even if you can’t understand what they are saying.

from lotelduvin (https://www.youtube.com/channel/UCIM0VWYD_0lhLZen8gsEUJA)

This issue of the Secret Life of Wine Newsletter includes several direct quotes from Chapter 15, ‘The Importance of Hillside Vineyards’ from my book “The Secret Life of Wine and other mostly true stories from the vineyards.”